Business Lending Dynamics Across the United States

Small business formation and growth are vital to the success of the American economy and the realization of the American dream. While consumer lenders still get the lion’s share of attention in the online lending universe, the reality is that there exists a great variety of non-bank fintech lenders and specialty finance companies who extend credit to businesses, and we are fortunate to work with so many of them.

Indeed, when we think of small business lending, the first word that comes to mind is ‘diversity’. There are so many types of businesses with myriad and unique financial needs, and many lenders do well to specialize, either by industry, region, acquisition channel, or product structure. Product types are particularly diverse. Among our business lender client-set, we see amortizing term loans, fixed-repayment loan products, merchant advances, loans with interest-only periods and balloon payments, fee-based loans, government-guaranteed loans, and trade finance products. With all that in mind, it is nearly impossible to make perfect, apples-to-apples comparisons, and to shoehorn diverse product types into a single definition of ‘small business’ would obscure the very details that make business credit so interesting. Nevertheless, we are able to mine our trove of data for insights into the small business finance market and the dynamics that affect this country’s firms.

Today, we will explore the high-level dynamics of lending to various industries across the united states, focusing on some of the most common industries and geographic locations.

As we can see in the graph above, our dataset contains the most data on business in Retail, Construction, and Health Care. Next, let’s see how our data are distributed geographically. As we can see, our dominant states are California, Florida, Texas, and New York.

Now, let’s mash up the industry and state data to explore how the top 10 industries in our dataset are distributed across the United States. We can see this in our geographic map below.

With many billions of dollars in small business lending data, there is much to explore. Let’s concentrate on the largest industries in the dataset: Retail, Construction, and Health Care.

Industry

Weighted Avg. Interest Rate

Weighted Avg. Factor Rate

Weighted Avg. Business Annual Revenue

Avg. Loan/Advance Amount

Weighted Avg. Years in Business

Weighted Avg. Guarantor FICO

Construction

13.46%

1.27

$2,990,004

$47,507

12.0

659

Health Care and Social Assistance

14.79%

1.32

$1,687,678

$44,173

13.9

648

Retail Trade

13.63%

1.29

$2,762,719

$38,346

12.5

650

The table above shows high-level summary statistics for the three top industries, while the maps below show their geographic concentration. Note that in each map, we have indexed the values to the population in each state. States that over-index for a given industry are shaded in blue, and states that under-index are shaded in red.

As we can see, construction lending seems to have the highest indexed concentration in places such as Florida, Texas, and Colorado. Lending to retailers seems to dominate the Northeast. Healthcare lending is concentrated most highly in Florida.

As we can see in the graph above, banks are still a massive provider of commercial credit in the United States, with over $2 trillion in balances outstanding. Nevertheless, the proliferation of non-bank, technology-enabled business lenders shows an untapped demand for small business financing in the market.

In Summary

The landscape of small business financing is broad and diverse, and we are fortunate to possess data on a solid cross-section of U.S. business. In this analysis, we have scratched the surface of three particular industries and explored their distribution across the country. In future blog posts and research papers, we will conduct deeper dives into specific industries, geographies, and product types, as well as explore performance. There is also much to be analyzed in the broader market, including the segmentation of commercial funding between banks and non-bank online lenders, particularly as they all compete to meet the needs of America’s small businesses.